Backing Founders vs. CEOs

As a seed investor our fund likes to invest early: first money in between concept and validation. At that stage and for a considerable amount of time after that, the only things that matter to a startup are product and technology. As a result I have a strong bias towards technical founders. And it is for this reason that I have never been a founder since I am not technical myself.

Would you use a law firm run by non-lawyers? Would you buy a car from a company whose designers are not passionate car drivers and enthusiasts?  I wouldn’t. And I also would not invest in a startup that does not have at least one strong product/ tech co-founder.

When I look at the successful startups I know or was a part of they all had technical founders that were either CEO till exit (or are still CEO) or remain on the core management team. And many (though not all) had great product/ UX DNA in the founding teams. Some added that later.

I ran into Ali from Well.ca yesterday. One of my favourite sayings of his is” everything’s an engineering problem“. At his company the development team is not sitting around waiting for instructions from business types. They are directly tasked with solving front line problems. If the site is not converting well enough, that’s an engineering problem and dev will dig into it. If email campaigns are not converting, that’s an engineering problem too.

Well’s lean, engineering-driven culture even extends to their warehouse. There they A/B test different methods of receiving, packing and shipping goods. Very few e-commerce startups do that.

The power of a strong technical leader and culture is just as strong at Shopify. Tobi, a 1st time CEO, is turning Shopify into a clear market leader. There are probably 3 startups that could be spun out just from the internal technology they have built to power their e-commerce platform. This technology gives them tremendous leverage. Rather than having to hire lots of bodies to keep up with growth, technology is helping them scale. To be clear, they’re hiring lots of people. But they’re hiring to further increase their tech and design dominance and they accomplish more with each new hire than most startups as a result of their technical strength.

When I meet new startups, no matter how great the idea is, without that core technical or product management team member, I just don’t want to dig in. Startups that have outsourced their v1 are clearly not thinking big enough. If they were, they’d have found that tech founder that is needed to scale.

Andreesen Horowitz partner Ben Horowtiz recently posted about their preference for founder CEOs. And more often than not, those founders are technical. If you’re the hottest VC (which they are) in the hottest market then you have the luxury of choosing from multiple opportunities led by technical founders that have seen scale and have had prior exits.

In smaller markets, we don’t have that luxury. So as an investor you have a tough choice to make: do you back 1st time product / tech folks who are learning what it means to be CEO of a VC-backed startup? Or do you bring in “professional” management?

I strongly believe that helping technical founders become great CEOs is the way to go. And in an ideal World that would be my exclusive investment strategy. But it’s really hard for 1st time leaders to stay ahead of the needs of their startup once it starts to take off. And as an investor, while you want to and often can help your founders, it’s hard to spend enough time with them because you’re always meeting potential new investments, other investors, strategic partners, potential recruits, your own investors, etc, etc.

As I wind down for the holidays, thinking through how I can better enable and support our founders is a key priority. If you have any thoughts, I’d love to hear them!